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Mezzanine finance can help you to access funds through a combination of equity and a loan. This hybrid finance option is commonly used by businesses as a way to raise funds for projects or help with an acquisition.
Mezzanine finance can be a great option for businesses who need to access money but are struggling to obtain it through other types of loans, giving the lender security through equity in the company.
Proper Finance can help you compare a range of different funding options for your business, not only with mezzanine finance, but also through secured loans, development finance and more. It’s important to explore all viable options before deciding which type of finance to use.
What Is Mezzanine Finance?
As previously mentioned, mezzanine finance is a type of finance option that uses a loan as well as the equity in your business to access funds. It works by blending debt and equity financing together, the lender offering funds that are secured against a certain share of the business’s profits.
It is a complex form of business loan, the requirements for the loan being subject to the lender and details of the application. Examples of using mezzanine finance include bridging loans, property developments, and management buyouts.
How Does Mezzanine Finance Work?
To put it simply, in mezzanine finance a business borrows money which is secured by a percentage of their equity.
For example, say a businesses was borrowing a loan from a lender but wanted to take out more. If the lender sees this as risky, or does not want to lend extra for whatever reason, they can suggest taking a slice of the potential profits as security on the loan – so a certain percentage of money lent is in the form of a standard loan, and an additional percentage is given and secured on equity in the business.
This finance option will usually only go on for up to 12 months, with the loan being paid in one lump sum. If the borrower cannot keep up with repayments within the given timeframe, the lender will then get a share in the business’s profits.
Why Would You Use Mezzanine Finance?
There are many different reasons why a business may want to use mezzanine finance, one of the main ones being that the borrower may be too high-risk to lend to. If a lender considers a borrower too high-risk, or they simply can’t afford the loan repayments, this type of finance may be an option. With this, lenders could get equity in the business, so if it takes off, the returns from lending the money could be considerably high.
Additionally, as previously mentioned, businesses may use mezzanine finance to help them “top-up” an existing loan. If for whatever reason a borrower asks for more money and the lender is reluctant to oblige, mezzanine finance can be a great way to compromise.
Compare Mezzanine Finance With Proper Finance
You can find great deals on a range of mezzanine finance options when comparing through Proper Finance. We work with some of the UK’s leading lenders, meaning you could find the very best funding options for your business by using our comparison site.
All you need to do to is fill out our application form. Once you have made your enquiry, a member of our team will swiftly get in contact with you to discuss things further. So what are you waiting for? Apply with us today!